Archive for the ‘Tax Fraud’ Category

Tax Preparers Behaving Badly

Sunday, August 24th, 2014

There’s a common thread among these tax professionals: You’ll be getting a refund. That sounds good until you realize that you really shouldn’t have, and that you will likely get in trouble later.

Our first preparer might be saying, “Well, I did get two returns correct.” Unfortunately, the IRS and the US Department of Justice allege he get 74 others wrong. The DOJ asked a federal court to bar Ernice Joseph and his Miami tax preparation firms, Ebenezer Tax Services Inc and Primo Tax Service Inc, from preparing federal returns for others. Why? Here’s what the DOJ states:

The complaint alleges that Joseph and his businesses prepared returns that unlawfully claim the Earned Income Tax Credit by reporting fictitious businesses or business income on clients’ Schedule C – Profit or Loss From Business. Joseph and his businesses prepare returns that claim education and other credits to which the taxpayers are not entitled in order to overstate their refunds. According to the complaint, the Internal Revenue Service (IRS) examined 76 returns prepared by Joseph and/or Ebenezer Tax Services and found that 74 contained a deficiency. The complaint alleges that, altogether, Joseph and Ebenezer Tax Service’s activities may have caused more than $20 million in loss to the U.S. Treasury. In addition, the complaint alleges that the revenue lost from Primo Tax Service’s activities could exceed $25 million.

Our next preparer is one step further along than Mr. Joseph. William Naes of St. Charles, Missouri, was permanently barred from preparing returns for others. Why? Well, things were too good to be true:

The government alleged that Naes prepared returns that fraudulently claimed tax deductions for his customers, including bogus deductions for charitable contributions and unreimbursed employee business expenses. According to the complaint, Naes also fabricated business expenses on Schedules C-Profit or Loss From Business, concocted a fake business for at least one customer and failed to properly identify himself as the paid preparer on many of the returns he prepared.

Neither Mr. Joseph nor Mr. Naes appear to be under criminal indictment; our other two preparers weren’t so lucky. Julius Williams owned and ran his tax preparation business in College Park, Maryland. He catered to temporary workers from Jamaica. His clients got a great deal: Phony Schedule C businesses, phony deductions, phony Earned Income tax credits, and phony education credits led to real refunds. Mr. Williams did one nasty thing to those clients: He stole those ex-clients’ identities to help his current clients. After all, they were back in Jamaica, unlikely to file another US tax return, so why waste a good identity? Finally, Mr. Williams cheated on his own taxes. He pleaded guilty and must make restitution of $1 million; he’s also looking at a term at ClubFed.

Our final Bozo preparer is Daniel Jones of Fredericksburg, Virginia. Mr. Jones operated a business called Tax Doctor Plus. I use the past tense because Mr. Jones will be heading to ClubFed for the next 37 months. He did have a lot of satisfied clients: he used phony tax credits, phony Schedule C’s, phony Schedule A expenses, and phony W-2s to increase his clients’ refunds. He also falsely claimed to be a CPA.

Some common sense applies when you’re reviewing your tax return. First, always review it–don’t just sign it. And if it shows you worked at a business you didn’t or you have a credit for college education expenses when you attended college twenty years ago, there’s a problem. Remember, if it sounds too good to be true it probably is.

A Golden Scheme Leads to ClubFed

Sunday, August 17th, 2014

If there’s one phrase I’ve used over and over on this blog, it’s if it sounds too good to be true it probably is. But greed is a powerful motivating force. For example, consider Yamashita’s gold.

Yamashita’s gold is the supposed booty that Japan accumulated during World War II in the Philippine Islands. Though it’s unclear whether or not this gold treasure really existed, the legend and the hunting for it continue to today.

For a con man, Yamashita’s gold represents an opportunity. Freeman Carl “Buck” Reed told investors he found it (and had also found “gold certificates” worth millions). Mr. Reed raised $1.3 million to get the gold buried in the Philippines. Instead of treasure hunting, the $1.3 million was used for maintaining Mr. Reed’s “facade of wealth.”

Mr. Reed also didn’t believe in filing tax returns. When you have income, that’s a felony. Combined with the fraud, that’s multiple felonies. Mr. Reed was convicted of tax fraud and then pled guilty to the gold fraud. He was sentenced to 87 months at ClubFed (more than 7 years).

Pop Goes the Tax Fraud

Sunday, July 6th, 2014

Here’s a potpourri of tax fraud to end your holiday weekend. First, we head to Albany, New York, where former rapper “Prime Minister Pete Nice” (aka Peter Nash) didn’t like paying state income taxes. There’s a problem with that: You don’t get a choice as to whether or not you do so. The Albany County District Attorney prosecuted Mr. Nash for not filing his 2009-2011 New York tax returns; he pled guilty to a misdemeanor charge of failing to file a tax return. He’ll be sentenced next month. It’s also likely that the IRS will call on him; he hasn’t filed his federal returns.

Francisco R. Legaspi was found guilty of tax fraud back in 1993. He was never sentenced for his crime; he fled to Canada. Mr. Legaspi decided to post on Facebook. Yes, the authorities read Facebook. The Bureau of Diplomatic Security found Mr. Legaspi. The Royal Canadian Mounted Police arrested him; he has been extradited back to the United States. He’s been arrested for failing to appear for his sentencing. And, yes, he still will be sentenced for the original tax fraud conviction.

Finally, Charles Loewen will be spending 37 months at ClubFed. The former NFL player (he played for the San Diego Chargers from 1980-1984) was sentenced last week for filing a false income tax refund claim. Mr. Loewen created his own documentation (which was phony) in attempting to obtain a $2.4 million refund. He also filed tax returns stating he had no income when his business did have income.

Another Example of a Regulated Preparer Committing Tax Crimes

Monday, June 9th, 2014

Yet another example of a regulated preparer committing tax crimes emerged this past week out of Ohio. Larry Couchot is a CPA in Ohio. He’s president and an owner of an accounting firm. Mr. Couchot also may be heading to ClubFed. Here’s what the Department of Justice noted:

According to documents filed with the court, during the period 2006 through 2010, Couchot was aware that these individuals used a substantial amount of company funds to pay for personal expenses, including payments for their personal cars, car insurance, country club dues, personal credit card charges and their individual income tax liabilities. Couchot also admitted that he was aware that one individual used company funds to pay for other personal expenses, including lawn services, repairs and maintenance to personal residences, granite counter tops and TV and audio systems.

One of the rules in tax is that if a preparer has personal knowledge of something, it must go on a tax return. We, too, sign the return under penalty of perjury. For example, if I know that you included $5,000 of granite countertops for your residence in “supplies,” it must be removed as a business expense. That’s what Mr. Couchot didn’t do. He’ll face sentencing later this year.

No, Fido & Lulu Can’t Own Your Business

Sunday, June 1st, 2014

Sometimes you read a story and wonder if it’s really true. Such was the case when I read this DOJ press release on Matthew and Sandra Zuckerman.

It starts like many cases: The Zuckermans didn’t like filing and paying taxes, so in 1986 they stopped filing. This continued for at least 24 years. If you don’t do anything that gets yourself well known, and stay in the shadows, it is possible (but still quite illegal) to not file and pay income taxes. Mr. Zuckerman, though was very successful.

He formed a corporation titled Silicon Valley New Issues that specialized in ‘reverse IPOs.’ (An IPO is an initial public offering of stock to the public. A reverse IPO is where a company purchases an already public shell company so that it can become a public company.) Mr. Zuckerman formed an interlocking web of businesses and trusts so that his income wouldn’t be traceable to the IRS. His personal wealth was quite large, with a mansion in Woody Creek, Colorado, and another $1.8 million home in Toluca Lake, California.

It is one of those companies, Hyperpanel University, Inc., which drew my attention to this case. All corporations have to have a Board of Directors. That board handles various business items of the corporation. Now, in a tightly controlled corporation you might just have one board member–yourself. But Mr. Zuckerman elected a strategy that I haven’t seen before (and I doubt I’ll see again): He named his pets as board members. A helpful hint to anyone who is contemplating such a move: Board members do need to be human beings. (Mr. Zuckerman’s dog and cat are no longer board members of Hyperpanel.)

In the end, all of the maneuvering just delayed the inevitable. Mr. Zuckerman pleaded guilty to one county of tax evasion earlier this year; last week, his wife, Sandra, pled guilty to one county of willful failure to pay income tax. They’ll be sentenced later this year. There’s no word on Fido and Lulu being charged.

Punt Blocked; National Audit Defense Network Heading to ClubFed

Tuesday, May 27th, 2014

Back in 2000, a company made the following boast on the Internet:

Oryan Management has developed a simple, “Turn-Key” method for you, the ordinary taxpayer to receive these Tax Credits and Deductions while keeping your costs low. Depending on how you pay your taxes, you could reduce your next quarterly payment by more than your out-of-pocket expenses for the year.

In addition to offering positive cash flow and business stability, Oryan assures your peace of mind by providing Pre-Paid Audit Protection on your tax return.

Wow, that sounds good. The tax credit was for modifications made for the Americans With Disabilities Act. Of course, like most credits you actually have to make building modifications; it really wasn’t available for everyone without doing that.

The IRS investigated, and the prepaid audit defense was worth exactly what you paid for it.

As I first reported back in 2009,

The government alleges that the scheme combined the Americans with Disabilities Act (ADA) with tax fraud. The idea of Tax Break 2000 was that you could get a tax credit for making facilities ADA compliant. However, the government alleges that Mr. Prokop and two individuals from Las Vegas conspired to defraud the US, committed tax fraud, and aided in preparing false tax returns.

Well, four years later and the trial has ended here in Las Vegas. The three indicted men, Alan Rodrigues, Weston Coolidge, and former NFL punter Joseph Prokop, were found guilty earlier today. Rodrigues and Coolidge were found guilty on 20 felony counts; Prokop was found guilty on 18 of 20 counts. Appeals of the verdict are expected.

Florida Doctor Does Much Wrong on her Way to ClubFed

Sunday, May 11th, 2014

Dr. Patricia Hough was a successful entrepreneur. She owned two medical schools in the Caribbean. That’s the good portion of this story. It’s what she did with the profits of the business (and the sale of the business)–or better put, what she did not do–that was the cause of the problem.

As for the bad, there’s plenty. She (and allegedly her husband) created nominee accounts at UBS and other foreign banks; of course, that income didn’t find its way to her tax return. Her half of the sale of the medical schools also didn’t find its way to the tax return. Those nominee accounts were at foreign banks; she didn’t file a Report of Foreign Bank and Financial Accounts (FBAR). And the money was used for conspicuous consumption: an airplane and three homes.

Last year she was found guilty of filing three false tax returns and conspiring to defraud the IRS. She was sentenced on Friday to two years at ClubFed, three years of supervised release, and must make restitution of $15,518,382.

Your Dependents do have to be Your Dependents…

Sunday, April 27th, 2014

One of my clients is expecting their first child at any moment. Their new baby will be their first dependent for their 2014 tax returns. Mahamadou Daffe of Queens, New York had other ideas about dependents.

Mr. Daffe stole identities of various children and then offered, for $1,000 per tax return he prepared, to “give” those children to his clients. That’s one way to grow a family but it’s highly illegal.

But Mr. Daffe had additional means of making money. He stole other identities (presumably adults) and used those to prepare tax returns with phony W-2s and took the profits. We’re not talking peanuts here; he asked for over $4.5 million over four-plus years (and received more than $1.5 million).

The good news is that the IRS caught on to his scheme, and Mr. Daffe was sentenced to 102 months at ClubFed; he was found guilty earlier this year. As a reminder, you are responsible for what is on your tax return. And you can only claim your dependents, not anyone else’s.

False Checks, Trusts, and Ignoring Taxes Lead to Real Prison

Sunday, March 9th, 2014

Perhaps Michael Williams subconsciously wanted to go to ClubFed. He sure did just about everything he could to make sure he did. Let’s run down the list of things he did.

First, have a business that makes money and not file tax returns. Check.

Next, set up trusts that don’t file tax returns. Check.

Let’s add some bank fraud. How about creating phony US government checks and trying to deposit those. Not only is that bank fraud, but it’s probably some other felonies. Check.

And then let’s target the state officials and judges who are involved in state investigations. Let’s refer them to the IRS. That will get them. (No, it didn’t.) The IRS won’t care about that. Check.

(Here, I should point out that this likely got a separate agency involved: TIGTA, the Treasury Inspector General for Tax Administration. TIGTA is the internal affairs department of the IRS, and phony criminal referrals would likely get referred to TIGTA rather than IRS criminal investigation.)

Mr. Williams, a resident of Colorado, was indicted in 2012. He was found guilty on November 5, 2013 after a six-day trial. It took the jury just three hours to find him guilty of tax evasion, currency structuring, bank fraud, and interfering with internal revenue laws.

US District Court Judge Linda Arguello called Mr. Williams “a danger to the community…[He] is continuing to show his contempt for the government and he appears to believe he is exempt from the laws of the United States.” He received 71 months at ClubFed to think things over.

Former Chairman of Woodland Park, NJ Democratic Committee Bribes His Way to ClubFed

Sunday, March 2nd, 2014

The IRS has its problems, but accepting bribes isn’t one of them. The former chairman of the Woodland Park, New Jersey Democratic Committee found that out the hard way.

Michael Kazmark didn’t pay his 1997-2005 federal taxes; he owed just under $100,000 (including interest and penalties) by 2010. When you owe a large amount and cannot pay one avenue that’s open to you is an Offer In Compromise (OIC). In an OIC, you ask the IRS to settle your debt for pennies on the dollar. About 15% of OICs make it through and are accepted; it usually takes over a year for the process to play itself out. Mr. Kazmark offered to pay $48,800 of the $98,046 he owed; he sent the required deposit of $9,800 with his OIC application.

Mr. Kazmark wanted to make sure his OIC went through. Now, most of us might consult with a tax professional who could make sure the OIC had the best chance of being approved. Mr. Kazmark had another idea: bribery. From the Information in his indictment:

5. It was part of this bribery scheme that on or about October 5, 2010, in Passaic County, defendant MICHAEL KAZMARK offered, promised to make and made a $1,000 bribe payment to UC1 and UC2 in exchange for their official assistance in transferring MICHAEL KAZMARK’s offer in compromise file to UC2 so that UC2 could accept defendant MICHAEL KAZMARK’s April 18, 2010 offer in compromise.

6. It was a further part of this bribery scheme that on or about October 5, 2010, in Passaic County, New Jersey, defendant MICHAEL KAZMARK offered and promised to make a $17,500 bribe payment to UC1 and UC2 in exchange for their official assistance in accepting defendant MICHAEL KAZMARK’s April 18, 2010 offer in compromise, and thereby resolving defendant MICHAEL KAZMARK’s federal tax liability, for the amount of the check that he had already paid to the IRS, namely $9,760, as opposed to the $48,800 that defendant MICHAEL KAZMARK had initially offered.

Mr. Kazmark pleaded guilty last year; he was sentenced on Friday to two years at ClubFed. He was lucky in that federal sentencing guidelines suggested a three-year term. In any case, bribery is a strategy that is a very poor choice.